A.I.G. Needs a New, Risk-Focused C.E.O. Right Away

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Peter Hancock, A.I.G.’s president and chief executive, said on Thursday that he would resign.CreditCreditRichard Drew/Associated Press

By Tom Buerkle

March 9, 2017

Surprising the market and the board is not a recipe for success for a chief executive. Peter Hancock did both last month in an enormous $5.6 billion charge at the American International Group, and now he’s on the way out. His replacement needs a better handle on risk and communication than predecessors had, and the sense to fend off a probable revived breakup push from Carl Icahn and John Paulson. It’s a tough call.

It took a heroic effort by A.I.G.’s former boss, Robert Benmosche, to restore it as a viable business after its $182 billion government bailout at the depth of the 2008 financial crisis. One of the consequences was loose underwriting to keep money flowing in the door.

The big failing of Mr. Hancock, the former JPMorgan Chase chief risk officer who succeeded Mr. Benmosche in 2014, was to never bring under control the way the insurer priced risk. Although its big fourth-quarter charge largely covered older business, $1.2 billion stemmed from larger-than-expected losses in 2016 and 2017. That news wiped 10 percent off the company’s market value and sent a wake-up call to the board.

Losses in the group’s core property and casualty business ate up 66.7 percent of premiums last year, far above the 57.8 percent at Chubb and 60.5 percent at Travelers. Even under a two-year turnaround program Mr. Hancock started 17 months ago, the insurer’s loss ratio for 2017 will still be two points higher than the industry average, at 62 percent.

A.I.G. has no obvious successor in-house, a recurring problem. After Maurice Greenberg was forced out as chief executive in 2005, his understudy, Martin Sullivan, took over and presided over the company’s near demise just three years later. Mr. Benmosche, a former MetLife chief, was lured out of retirement to pick up the pieces. He brought in Mr. Hancock to oversee risk and the property and casualty business despite his having no insurance experience.

The next top executive won’t have time for on-the-job learning. Mr. Icahn called for a breakup to reduce regulatory burdens after taking a stake in 2015. The board mollified him and Mr. Paulson with board seats last year, and Mr. Hancock sold off the group’s big mortgage-insurance business. But the appeal of a hiving off the company’s various parts may become irresistible if the next chief executive fails to get its core commercial business in shape.